Lesson 4.1.8

4.1.8 Exchange rates Quiz: Pearson Edexcel Economics, Unit 4

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson 4.1.8, Exchange rates: 20 multiple choice questions for the Pearson Edexcel Economics (9EC0), Unit 4: Theme 4: A global perspective, written with Revision Ninja.

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The 20 questions

  1. Who determines the currency value in a fixed exchange rate system?

    • Market demand
    • Commercial banks
    • The central bank
    • Foreign investors

  2. Which system combines market forces with periodic central bank intervention in currency markets?

    • Pure floating rate
    • Fixed exchange rate
    • Monetary union
    • Managed float

  3. What is an official increase in a currency's value under a fixed exchange rate system?

    • Appreciation
    • Devaluation
    • Revaluation
    • Depreciation

  4. What is a market-driven decrease in a currency's value under a floating exchange rate?

    • Appreciation
    • Depreciation
    • Devaluation
    • Revaluation

  5. Which factor is most likely to cause a currency appreciation under a floating exchange rate?

    • Lower interest rates
    • Expanding trade deficit
    • Higher interest rates
    • Higher inflation

  6. If domestic inflation is 6% and trading partner inflation is 2%, purchasing power parity predicts:

    • 8% depreciation
    • 2% appreciation
    • 4% appreciation
    • 4% depreciation

  7. How can a central bank directly support a depreciating currency under a managed float?

    • Lower interest rates
    • Increase money supply
    • Buy domestic currency
    • Sell domestic currency

  8. What is the main aim of a country engaging in competitive devaluation?

    • Boost export competitiveness
    • Reduce price inflation
    • Attract foreign imports
    • Lower domestic employment

  9. What is a major global risk of competitive currency devaluation between nations?

    • Lower global tariffs
    • Global price stability
    • Increased international aid
    • Retaliatory trade wars

  10. How does a currency depreciation affect the domestic economy's inflation rate?

    • Deflationary pressure occurs
    • Cost-push inflation rises
    • Inflation rate falls
    • No inflation impact

  11. Under the Marshall-Lerner condition, depreciation improves the current account if combined export and import PED is:

    • Greater than 2
    • Less than 1
    • Greater than 1
    • Equal to 0

  12. Export PED is 0.6 and import PED is 0.5. Will currency depreciation improve the current account balance?

    • No effect
    • No, it worsens
    • Yes, it improves
    • Uncertain

  13. Export PED is 0.4 and import PED is 0.3. Under the Marshall-Lerner condition, currency depreciation will:

    • Eliminate deficit
    • Have no effect
    • Improve current account
    • Worsen current account

  14. Which effect describes a current account worsening short-term after depreciation before eventually improving?

    • Multiplier effect
    • Fisher effect
    • Marshall-Lerner effect
    • J-curve effect

  15. How does a depreciation of the domestic currency typically affect foreign direct investment inflows?

    • Increases inflows
    • Decreases inflows
    • Prevents foreign ownership
    • No effect

  16. Which event is most likely to cause a floating currency to depreciate?

    • Lower interest rates
    • Higher interest rates
    • Capital inflows
    • Increased export demand

  17. What is the most likely impact of a domestic interest rate rise on a floating exchange rate?

    • Currency appreciates
    • Exchange rate fixed
    • Currency depreciates
    • No impact

  18. How does a 15% currency depreciation typically affect the volume of inbound tourists?

    • Inflows drop rapidly
    • Inflows increase
    • Inflows decrease
    • Inflows remain unchanged

  19. What is an official reduction in the fixed value of a currency by government authorities called?

    • Appreciation
    • Revaluation
    • Devaluation
    • Depreciation

  20. Domestic inflation is 8% and foreign inflation is 3%. According to relative PPP, expected annual currency depreciation is:

    • 5%
    • 8%
    • 3%
    • 11%

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